The Asian Development Bank (ADB) will provide a US$200 million loan to the Philippines for financial sector reforms to improve financial sector stability, increase the efficiency and liquidity of markets, and strengthen the regulatory environment in the wake of the global economic crisis.
Capital markets in the Philippines have matured, but to support the government's growth and poverty reduction targets under its Medium Term Development Plan, the investor base needs to be broadened, and market access improved to mobilise savings, says ADB. This requires stepping up the level of intermediation between savers and investors.
At the same time, the global financial crisis highlighted weaknesses in the Philippine financial sector, which are addressed in the policy actions for phase 2. These include measures by the central bank to boost stability, such as providing additional liquidity to the banking system, and the doubling of the deposit insurance ceiling for bank account holders. To encourage industry consolidation a program of incentives to encourage weaker rural banks to merge with stronger ones has been launched.
"The crisis demonstrated the importance of maintaining financial sector stability, as well as the need to maintain sound and well coordinated regulatory oversight to reduce vulnerabilities," says Stephen Schuster, senior financial sector specialist in ADB's Southeast Asia Department.
Steps have been taken to beef up regulatory oversight. The enforcement powers of the Philippine Deposit Insurance Corporation have been strengthened, and the Security and Exchange Commission's (SEC) market surveillance capacity has been increased, while measures to improve coordination amongst regulators have also been taken. To develop an efficient and liquid secondary securities market, the SEC has laid down the framework for over-the-counter trading, including a central trade reporting system, as well as listing requirements and rules, which will pave the way for trading in corporate bonds on the fixed income exchange.
"All these actions will lead to a deeper, more diversified and resilient system, resulting in improved access to finance and a greater contribution to growth and poverty reduction from the financial sector," notes Schuster.
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